Tag: cloud

Three Possible Directions for Contact Center Outsourcing | Sherpas in Blue Shirts

The contact center outsourcing (CCO) marketplace is mature. It’s a large market, and companies across a wide number of industries and geographies use the services. The market is now $70-75 billion, which is approximately 20 percent penetrated by third-parties vendors and 80 percent by in-house captives. Now that this space is mature, what will happen to the industry? I believe that there are three likely directions.

Optimization trend

As in similar mature marketplaces, customers are looking to extract more value from the service. One way to optimize it is to embrace new disruptive technologies such as social media and analytics.

Alternatively the market is increasingly recognizing that not all work should be in low-cost locations. Consequently, they’re repatriating some of the work from low-cost locations such as India back onshore and matching it with workloads that demand more intimate services with better language skills or local knowledge requirements.

As the CCO market further matures, I believe providers have three choices.

1. Stay the course

Providers that choose to stay the course will need to meet customer demands by continuing to refine the model through actions such as embracing the multi-channel social media and integrating analytics. They will also need to add more value to the existing offer base and further optimize it. In this world, providers can expect ongoing pressure on margins and on price, increased requirement for investing in technologies and also can expect slow growth.

2. Consolidate

This is a fractured industry now with few large players, and the large players control only a small portion of the total volume. So I expect industry consolidation. Providers will get big or sell and go home. I also expect that several players will execute a roll-up strategy where they build economies of scale and economies of presence.

3. Disrupt

The third possible direction for the mature CCO space is to be disruptive. I believe a segment of this market will follow the path that data centers have gone in that there will be a cloud or cloud-like as-a-service offering that will bring a different business model to this segment.

New providers coming in and disrupting the space will likely capture high rents far exceeding those of the first two alternatives. Like their cloud and SaaS counterparts, they will operate very different business models with much more focused value propositions. These business models will deliver similar as-a-service benefits that SaaS and cloud deliver. However, they will accomplish this not by building a multi-tenant platform but by turning every aspect of the supply chain into a consumption model. This service model will be much more finely targeted at a customer’s needs rather than the service components such as people and technology, and it will allow customers to move away from the FTE take-or-pay model that currently dominates the industry.

2015 will be an interesting year for contact center outsourcing, as we’ll see segments of this market diverging on all three paths.

Sales Strategy Shift in the Cloud Services Market | Sherpas in Blue Shirts

The fact that enterprises are making a strategic intent shift to cloud and as-a-service models changes more than the service delivery model. It also changes the value proposition and therefore causes implications for provider’s sales strategies. For starters, the focus turns away from the provider’s capabilities.

Sure, those capabilities are still important. But with the new models the focus shifts to the customer’s needs.

The old strategic intent and value proposition was to achieve cost savings. Providers presented offer-based solutions touting the provider’s services. For example, a provider selling to a potential client in the P&C insurance industry might describe the kind of clients it services and how many clients it has, as follows:

“We have 25 clients in the P&C space with five million policies, 1000 analytics professionals with advanced statistical knowledge. We have 5,000 FTEs in eight offshore, nearshore and onshore locations. And we have a platform-based solution.”

Competition would take place on which provider’s offer is the most compelling to the customer. Typically in an offer-based solution the winning provider would be the firm with the most experience in the industry that targets the customer’s areas at appropriate price points.

But cloud and as-a-service solutions focus on the customer’s needs. This gives providers the opportunity to shift to needs-based messaging, as in the following example for a P&C insurance company:

“P&C insurers are battling high expense ratios, coupled with low interest rates globally. This is putting strains on their finances. Our solution can help you automate underwriting and shorten quote times by up to 60 percent, improve fraud detection by over 40 percent and facilitate early identification for subrogation helping improve overall margins.”

One of the most significant implications of the enterprise shift to the cloud is that focusing on needs-based messaging instead of the provider’s capabilities offer-based messaging will change the brute force product-selling mechanism that has come to define the market as we know it.

Implications for the Application Development Outsourcing Market from Strategic Intent to Cloud | Sherpas in Blue Shirts

The current enterprise shift in strategic intent toward cloud services has major implications for the outsourcing market. I’ve blogged about the implications for the infrastructure outsourcing market. Clearly the strategic shift will also affect application development outsourcing. We see three major implications for this market.

Everest Group is working with large enterprises as they consider the issue around migrating to the cloud. It’s very clear that they over-provisioned their application development and maintenance teams. And they spend a lot of time and effort in managing teams rather than focusing them on delivering business value.

The as-a-service orientation seeks to address this by aligning apps with infrastructure by application or by service area application family.

Increasingly application maintenance and development are more commoditized and less sticky than they were in the past. We see this demonstrated in the big jump in challenger wins in recompetes.

Implications

  1. The incumbent providers will need to shift to new models or suffer loss of market share. However, it is unclear at this time whether or not providers that have succeeded with the traditional factory arbitrage model will be able to make the shift, potentially opening the door for a new range of challengers coming through.
  2. The shift to an as-a-service orientation appears to put more emphasis on the need for provider domain and industry expertise
  3. The as-a-service model also will require a greater proportion of flexible delivery close to the user, hence challenging Indian firms’ established factory model so prevalent in the arbitrage era.

The implications are still emerging. But it is already clear that the services industry has a potential challenger model emerging in the outsourcing applications development space.

IBM Takes Steps to Ensure It Will Be Relevant for the Future | Sherpas in Blue Shirts

IBM is taking some bitter medicine right now in its series of divestments. Big Blue recently exited the chip manufacturing business by spinning off that division to Globalfoundries. The move comes on the heels of having exited its server business and voice and transaction BPO business. There’s a lot of media attention to “IBM’s blues” and a lot of water cooler talk about what IBM is up to. Are they going to be viable, or do they have a foot in the grave? I look at it as they are ensuring that they have both feet on a very solid growth platform.

But the series of divestments raise a lot of eyebrows and create shareholder discomfort. It takes time for shareholders and customers to process what IBM is doing.

Here’s what’s happening:

  • The divestments were not failed businesses. They just are not the future of IBM. The company is simply pruning back its operations that have been a drag on earnings and siphoning their management attention and resources.
  • IBM has been acquiring almost one company per month, largely in the areas of cloud software, analytics and Big Data.

Often the assets IBM sells do well in other hands. Lenovo has done very well with IBM’s former PC business and looks to do well in the server business. And I expect Globalfoundries to do well with the chip business.

Simply put, IBM is remaking itself and making very deliberate and assured steps for its future. It is rare for large organizations to have the discipline to exit businesses. Most large organizations are eager to buy new growing businesses but struggle in the divestment of businesses that are no longer strategic or are struggling to perform. But IBM has managed to remake itself a number of times in their long, historic journey.

IBM now clearly has both feet in the future, whether it’s a growth platform for cloud, analytics, or high-value IT and BPO services.

I think this should be a comfort to IBM customers. Big Blue is taking necessary steps now to not become a Kodak and not consign itself to irrelevance for customers’ future needs.

Implications of the Enterprise Strategic Intent Shift toward Cloud | Sherpas in Blue Shirts

Since the beginning of 2014 Everest Group has seen a real shift in large enterprise CIO organizations in their strategic intent toward cloud services. What are the implications on the traditional infrastructure outsourcing market from this strategic intent?

Timing

First, we expect that this shift will not happen overnight. As organizations work on their cloud plans, it’s clear that this is a three-to-five-year journey for migrating some or all their environment into this next-generation environment.

Runoff of work from legacy environments

Second, we expect the runoff on traditional outsourced contracts to accelerate. The runoff has been running at about 5-10 percent a year. We expect this will pick up to something close to 50 percent of the workloads to shift over to the cloud in the next three years with 30 percent of that shift happening in the next two years.

So this is a dramatic runoff of work from legacy environments into the next-generation models. This will put significant pressure on the incumbent service providers in that space.

Who will be the likely winners?

The third implication is the likely winners from this strategic shift. We think that at least for the next two years the Indian players or those with a remote infrastructure management (RIM) model will enjoy substantial benefits. Often a move to cloud or next-generation technologies can be facilitated by a move to a RIM model. So we see RIM continuing its torrid growth.

We also believe the providers with enterprise-quality cloud offerings will be players. One that particularly comes to mind is IBM’s SoftLayer, which we think is well positioned for the shift. It has its own runoff and can grab share from asset-heavy or other legacy providers as runoff occurs there.

We expect to see Microsoft and its Azure platform play an increasingly prominent role in cloud services. It will be interesting to see if AWS, Google, and Microsoft can make the shift from serving rogue IT and business users to enterprise IT. At this time we certainly believe IBM can. And it looks like Microsoft is making deliberate efforts to transition its model. It remains to be seen if AWS and Google are willing to shift their models to better accommodate enterprise IT.


Photo credit: Photo Dean

Sea Change in Large Enterprises’ Cloud Strategic Intent | Sherpas in Blue Shirts

For five years we at Everest Group have tracked the cloud space in global services. Until this year, there was a lot of talk about cloud, but much true cloud adoption was driven in business units with large enterprises. CIOs basically sat out the game and watched the cloud’s performance. But since the beginning of 2014 we’ve seen a real shift in large enterprise CIO organizations, which signals a significant change for the services industry.

Until recently CIOs in large enterprises were reluctant to put cloud initiatives in place because they felt it was premature. They struggled with compliance and security questions. And they worked to make sure their organization understands and embrace cloud and as-a-service technologies. Their posture is moving from cautiously watching to actively planning and driving, and some have large initiatives underway. Their plans with regard to cloud have moved from the radical fringe to mainstream strategic intent to embrace and drive.

Large enterprise tech budgets are still controlled by the CIO organization because they are best able to drive technology initiatives to scale and to execute initiatives across functions.

This is a very important development and will cause significant changes in the technology and services industry. This undoubtedly will start to drive a significant shift in spend from the traditional structures into the cloud and as-a-service models. As that occurs, we believe it will pick up momentum and pull the rest of the industry through.

IBM Positioning for Dominance in Future of Infrastructure Services | Sherpas in Blue Shirts

I recently had the privilege to sit through a two-day session with IBM’s senior executive team in services. I’m someone who tries not to drink the Kool-Aid. Even so, I came away truly impressed by the work that IBM has done to position itself to be relevant and a major player in the future of IT infrastructure.

I’ve written frequently in this blog about the impending crisis that all asset-heavy players face as first RIM and then cloud attack their revenue base. This unrelenting onslaught is already moving share from the incumbents such as IBM to challengers such as HCL and TCS and will only be exacerbated as cloud takes stronger hold.

I came away with from the two days with IBM realizing Big Blue’s profound understanding of this phenomenon and its positioning of offers that allows them to leapfrog the RIM model and play a decisive and significant role in cloud.

Taken as a whole, IBM’s public cloud software and private cloud and automation strategies gives it the capability to move clients smoothly into the future. And it assures capturing the run-off from IBM’s traditional business while at the same time expanding market share. This is truly a formidable set of capabilities that, if executed well, will ensure IBM is a major — if not dominant — player in the future of IT infrastructure.

Everything will come down to execution, and history has seldom been kind to incumbents in the face of major technology and business model disruption. But based on the two days I spent with IBM, I believe that IBM has more than a fighting chance to successfully make this transition.


Photo credit: Irish Typepad

If I Were the Man You Wanted | Sherpas in Blue Shirts

Singer/songwriter Lyle Lovett wrote a song with the line “If I were the man you wanted, I would not be the man that I am.” With apologies to Lyle Lovett, I think this is a very appropriate line when applied to IT infrastructure services today. Clients’ changing expectations of their incumbent IT infrastructure service providers leave the providers lamenting like the forlorn cowboy in Lovett’s song.

It’s only natural for companies to want their incumbent service providers to bring them cloud offerings. Their expectations are set by what they read and see from Amazon, Microsoft and Google. They want the infrastructure services price dropped, the benefits of elasticity and flexibility of the cloud model and usage with no commitment. Companies are trying to persuade or force their infrastructure providers to bring cloud offerings.

But IT infrastructure providers are unable to provide what they want.

The “gotcha”

The clients helped created the underlying problem. The incumbents’ services are bespoke, unique, and have been dictated through client contracts in a different kind of delivery model. In this model, costs rise every year through COLA rather than plummeting like the price of public cloud. The cost of public cloud services had been dropping around 20 percent per year but is now accelerating with the latest adjustment between 60-80 percent in a single downward-pricing adjustment by Google, quickly followed by all the major cloud players.

The pricing components are not apples to apples, and companies understand that. But plummeting prices play into client expectations. Expectations of business users that they ought to be able to have deflating costs with elasticity and flexibility and limited or no long-term commitments just cannot be met in the traditional outsourcing base.

The incumbent providers’ delivery model is a recipe of the client’s own making. Clients dictated where the provider can provide services from, what kind of service the provider must deliver and demanded customization to address their needs. As a result, providers have huge stranded investments tied up in providing what the clients demanded.

Dose of reality

There is no “they lived happily ever after” end to this situation. Among infrastructure clients, the situation causes increasing unhappiness as their unmet expectations further diverge from the reality of the services their incumbent providers deliver. But because of contractual obligations and because of their orientation, the incumbent service providers simply cannot change.

So, like the forlorn cowboy in Lyle Lovett’s song, the lyrics resonate with great poignancy among today’s service providers … “If I were the man you wanted, I would not be the man that I am.”


Photo credit: Cristian Viarisio

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